InternetCash.com
Encyclopedia
InternetCash.com was a company
that generated pre-paid cards, either in physical or electronic form, to distribute cash. The cash consisted of an InternetCash number together with a customer-selected PIN. The InternetCash e-currency
could then be spent with participating online merchants. An early name for InternetCash, before it acquired the internetcash.com domain name, was SpendCash.com.
InternetCash was founded in April 1999 and it filed several patent
s to protect its novel electronic money system. Its founders raised over $10 million, mostly from Jim Bidzos and ElDorado Ventures, a Menlo Park venture capital firm between May and December 1999.
Todd Kahn, Esq. was recruited in April 2000 as President and COO, taking over most of Mr. Doherty's functions.
, or to build its own payment network. It chose the latter in order to offer better security, especially on the Internet payment side. Therefore, InternetCash required merchants to redirect the customer to a new web page, which was operated by InternetCash and was called the "InternetCash payment window", where they would type in their card number and PIN. Part of the card number together with the transaction details and timestamp was then digitally signed by that window (using InternetCash's hardware encryption devices) and then sent back to the merchant for storage and reference. The digital signature and the transaction details were then sent to InternetCash's payment server, where the transaction was completed. This two-stage approach allowed full flexibility on the deployment of the "InternetCash Payment Window", which was effectively providing the payment security to the system, so it could be run on separate servers than the actual "banking" system, which maintained the card balances and performed the transactions.
Visa, MasterCard
and JCB adopted a similar architecture a few years later, in 2001, for their 3-D Secure
(also known as "Verified by Visa", "MasterCard SecureCode" and "J/Secure") system.
An additional advantage of this architecture was that the "InternetCash Payment Window" could be used to securely accept any type of payment, including credit cards (much like 3-D Secure
), debit card
s and checks
, and not just its own pre-paid cards. In fact, efforts were made by its founders to enable American Express's "blue" chip cards and regular debit cards to be used online, but after the Internet crash many of the companies involved put these projects on hold.
In addition to building its own secure Internet-based payment network, InternetCash utilized hardware encryption devices from nCipher (acquired by Thales
on July 11, 2008) combined with custom code for generating its card numbers. InternetCash card generation used secret sharing
techniques, requiring a quorum of authorized company Officers present when the cash was minted. The card numbers themselves included a digital signature
based on keyed hash functions, thus preventing third parties from randomly generating a card number—a form of security not present in typical credit or debit card numbers.
, breakage and advertisement.
The transaction fees that InternetCash charged ranged from 6% to 12% with no fixed costs, much higher than the typical 2-4% plus 20-35 cents per transaction "Interchange Fee"
charged by credit cards, which was owed to a combination of the effectiveness of its sales team, the lack of Internet payments for those without a credit card, and the lack of payment systems for low-valued products (since it had no fixed-cost fees per transaction InternetCash was suitable for micropayment
s, such as spending $1 to buy an article or a song online).
float
and breakage are typical ways that pre-paid card or gift systems make money. Depending on the popularity of the pre-paid item, the breakage can range from 5% of the notional value outstanding for a widely used system such as the New York City subway cards, to higher than 30% for closed-loop systems, such as a gift card which is redeemable at only one type of store.
In addition to the above, typical for a payment company, ways of making money, InternetCash used its website and the face of the physical pre-paid cards to advertise the merchants that signed up to its network, thereby generating additional revenue.
Despite the failure, a few of the concepts pioneered by InternetCash did eventually find commercial applications via other companies: 3-D Secure
was an architecture similar to InternetCash's Payment Window, and it is used to protect credit card transactions on the Internet; and today's pre-paid gift cards, typically operated over the Visa or MasterCard
network follow the same business model. As for micropayments, they appear to have finally become feasible via Apple's iTunes Store
.
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
that generated pre-paid cards, either in physical or electronic form, to distribute cash. The cash consisted of an InternetCash number together with a customer-selected PIN. The InternetCash e-currency
Electronic money
Electronic money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems...
could then be spent with participating online merchants. An early name for InternetCash, before it acquired the internetcash.com domain name, was SpendCash.com.
InternetCash was founded in April 1999 and it filed several patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
s to protect its novel electronic money system. Its founders raised over $10 million, mostly from Jim Bidzos and ElDorado Ventures, a Menlo Park venture capital firm between May and December 1999.
Founders
InternetCash's founders were Charles Doherty, Yiannis Tsiounis, Jason Richelson, and Ben Reddy. Mr. Doherty, an entrepreneur, had the idea about a pre-paid card system and contacted Yiannis Tsiounis, who had recently completed his Ph.D. in electronic cash, in order to build a suitable architecture for the system and write the appropriate patents. Dr. Tsiounis subsequently contacted Jim Bidzos who funded the first institutional investment round. Independently, Ben Reddy, also an entrepreneur, had the same idea and worked with Jason Richelson to write and file a similar patent in April 1999. Mr. Doherty, the CEO of InternetCash, proceeded to recruit Mr. Reddy and Mr. Richelson in May 1999 and the patent work was combined under the guidance of Dr. Tsiounis, by then InternetCash's CTO. Mr. Reddy took on the role of VP of Sales and Mr. Richelson that of VP of Operations.Todd Kahn, Esq. was recruited in April 2000 as President and COO, taking over most of Mr. Doherty's functions.
System architecture
InternetCash faced the choice of piggybacking on existing payment networks, such as those of Visa and MasterCardMasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
, or to build its own payment network. It chose the latter in order to offer better security, especially on the Internet payment side. Therefore, InternetCash required merchants to redirect the customer to a new web page, which was operated by InternetCash and was called the "InternetCash payment window", where they would type in their card number and PIN. Part of the card number together with the transaction details and timestamp was then digitally signed by that window (using InternetCash's hardware encryption devices) and then sent back to the merchant for storage and reference. The digital signature and the transaction details were then sent to InternetCash's payment server, where the transaction was completed. This two-stage approach allowed full flexibility on the deployment of the "InternetCash Payment Window", which was effectively providing the payment security to the system, so it could be run on separate servers than the actual "banking" system, which maintained the card balances and performed the transactions.
Visa, MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
and JCB adopted a similar architecture a few years later, in 2001, for their 3-D Secure
3-D Secure
3-D Secure is an XML-based protocol designed to be an added layer of security for online credit and debit card transactions. It was developed by Visa with the intention of improving the security of Internet payments and offered to customers as the Verified by Visa service...
(also known as "Verified by Visa", "MasterCard SecureCode" and "J/Secure") system.
An additional advantage of this architecture was that the "InternetCash Payment Window" could be used to securely accept any type of payment, including credit cards (much like 3-D Secure
3-D Secure
3-D Secure is an XML-based protocol designed to be an added layer of security for online credit and debit card transactions. It was developed by Visa with the intention of improving the security of Internet payments and offered to customers as the Verified by Visa service...
), debit card
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
s and checks
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
, and not just its own pre-paid cards. In fact, efforts were made by its founders to enable American Express's "blue" chip cards and regular debit cards to be used online, but after the Internet crash many of the companies involved put these projects on hold.
In addition to building its own secure Internet-based payment network, InternetCash utilized hardware encryption devices from nCipher (acquired by Thales
Thales
Thales of Miletus was a pre-Socratic Greek philosopher from Miletus in Asia Minor, and one of the Seven Sages of Greece. Many, most notably Aristotle, regard him as the first philosopher in the Greek tradition...
on July 11, 2008) combined with custom code for generating its card numbers. InternetCash card generation used secret sharing
Secret sharing
Secret sharing refers to method for distributing a secret amongst a group of participants, each of whom is allocated a share of the secret. The secret can be reconstructed only when a sufficient number of shares are combined together; individual shares are of no use on their own.More formally, in a...
techniques, requiring a quorum of authorized company Officers present when the cash was minted. The card numbers themselves included a digital signature
Digital signature
A digital signature or digital signature scheme is a mathematical scheme for demonstrating the authenticity of a digital message or document. A valid digital signature gives a recipient reason to believe that the message was created by a known sender, and that it was not altered in transit...
based on keyed hash functions, thus preventing third parties from randomly generating a card number—a form of security not present in typical credit or debit card numbers.
Business model
InternetCash planned to make money from four sources: transaction fees, floatFloat (money supply)
In economics, float is duplicate money present in the banking system during the time between a deposit being made in the recipient's account and the money being deducted from the sender's account. It makes up the smallest part of the money supply....
, breakage and advertisement.
The transaction fees that InternetCash charged ranged from 6% to 12% with no fixed costs, much higher than the typical 2-4% plus 20-35 cents per transaction "Interchange Fee"
Interchange fee
Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions. Usually it is a fee that a merchant's bank pays a customer's bank however there are instances where the interchange fee is paid from the issuer to...
charged by credit cards, which was owed to a combination of the effectiveness of its sales team, the lack of Internet payments for those without a credit card, and the lack of payment systems for low-valued products (since it had no fixed-cost fees per transaction InternetCash was suitable for micropayment
Micropayment
A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. PayPal defines a micropayment as a transaction of less than 12 USD while Visa prefers transactions under 20 Australian dollars, and though micropayments were originally envisioned to...
s, such as spending $1 to buy an article or a song online).
float
Float (money supply)
In economics, float is duplicate money present in the banking system during the time between a deposit being made in the recipient's account and the money being deducted from the sender's account. It makes up the smallest part of the money supply....
and breakage are typical ways that pre-paid card or gift systems make money. Depending on the popularity of the pre-paid item, the breakage can range from 5% of the notional value outstanding for a widely used system such as the New York City subway cards, to higher than 30% for closed-loop systems, such as a gift card which is redeemable at only one type of store.
In addition to the above, typical for a payment company, ways of making money, InternetCash used its website and the face of the physical pre-paid cards to advertise the merchants that signed up to its network, thereby generating additional revenue.
History
Although the business model looked promising, InternetCash spent most of the money it raised to build its secure payment network and card generation and maintenance architecture. After the Internet crash of April 2000 InternetCash found itself with almost no money in the bank and the inability to raise any additional funding. When InternetCash moved into its New York offices in May 1999 it consisted of five people. By March 2000 it had 70 employees and had already outgrown its original office space. By March 2001 the count was back down to six. The founders, the newly recruited President & COO Mr. Kahn and the VP of Strategy, Mr. Daniel Marein-Efron, kept the company running for more than a year, but in August 2001 the company eventually closed down.Despite the failure, a few of the concepts pioneered by InternetCash did eventually find commercial applications via other companies: 3-D Secure
3-D Secure
3-D Secure is an XML-based protocol designed to be an added layer of security for online credit and debit card transactions. It was developed by Visa with the intention of improving the security of Internet payments and offered to customers as the Verified by Visa service...
was an architecture similar to InternetCash's Payment Window, and it is used to protect credit card transactions on the Internet; and today's pre-paid gift cards, typically operated over the Visa or MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
network follow the same business model. As for micropayments, they appear to have finally become feasible via Apple's iTunes Store
ITunes Store
The iTunes Store is a software-based online digital media store operated by Apple. Opening as the iTunes Music Store on April 28, 2003, with over 200,000 items to purchase, it is, as of April 2008, the number-one music vendor in the United States...
.
See also
- Internet currencyInternet currencyInternet currency was a form of electronic money for the Internet. Most sites offering Internet currency have either shut down or been acquired.-History:...
- Electronic moneyElectronic moneyElectronic money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems...
- BitcoinBitcoinBitcoin is a decentralized, peer-to-peer network over which users make transactions that are tracked and verified through this network. The word Bitcoin also refers to the digital currency implemented as the currency medium for user transactions over this network...
- Flooz.comFlooz.comFlooz.com was a dot-com venture, now defunct, based in New York City that went online in February 1999, promoted by comic actress Whoopi Goldberg in a series of television advertisements...
- Beenz.comBeenz.comBeenz.com was a web site that allowed consumers to earn beenz, a type of online currency, for performing activities such as visiting a Web site, shopping online, or logging on through an Internet service provider...